Banks delay debt restructuring for Indian domestic airlines

By Dino D'Amore
October 4, 2010 14:45

Banks working to restructure debt packages of both Kingfisher Airlines and Paramount are reported to have approached Reserve Bank of India to treat aviation debt as standard assets rather than restructured debt to enable the banks to reduce provisioning.

If the banks don’t receive this special dispensation from the RBI now, they have threatened to delay the debt restructuring for the airlines, which could be severely damaging for Kingfisher in particular that stated last week it was considering a rights issue (see Aviation News, editorial comment from October 1 http://www.aviationnews-online.com/editorial-comment/kingfisher-airlines-in-rights-issue-and-to-reactivate-airbus-order-%E2%80%93-investors-say-fine-but-we-need-our-man-at-the-top-%E2%80%93-cue-a-known-name-for-the-role-of-ceo/)

The Kingfisher restructuring deal includes allowing a two-year moratorium on short-term debt, lowering the interest rate and converting part of the domestic debt into external commercial borrowings or cumulative convertible preference shares. The airline had a combined debt of Rs 7,413 crore at the end of December 2009. It posted losses of Rs 1,647 crore at the end of March 2010.